Let's say one day you are contacted by a person who is supplying materials to your contractor for your new home. They're angry because they haven't received any payments for their contributions despite the fact that you know you have paid your contractor for everything so far. It's then that they tell you that they have placed a mechanic's lien against your property and request payment soon or they will be forced to file a lawsuit.
You're panicked by the prospect of a lawsuit but what is a mechanic's lien and how could you have avoided one in the first place?
According to legal sources, "mechanic's liens, despite their name, are typically used by subcontractors and suppliers, and are a legal complaint against property that has been remodeled or improved." This usually occurs when a general contractor does not pay a supplier or subcontractor for materials or services. What can be surprising for many homeowner's is that even if they have paid the general contractor for the materials or services, if the general contractor does not then pay the supplier or subcontractor, a mechanic's lien may be placed against the property until payment is recovered.
It may seem unfair for a homeowner to be held responsible for a general contractor's irresponsible behavior but the law assumes that you will pursue legal action against the general contractor after a lien has been placed.
So, how do you protect yourself from a mechanic's lien? There are three simple ways that many business and commercial law experts say can help you avoid difficulties down the road. One way is to place both the general contractor and the subcontractor's names on a check. By doing so, you ensure that both parties sign the check therefore both receiving payment. Also, following up with your subcontractors to make sure that they have received payment is another way to avoid liens. Requesting a waiver from your subcontractors to give to your contractor is a good way to not only make sure that they get paid but to make sure that they do not hold you accountable for any lost payments in the future.
If either of these options does not work, paying your subcontractors or suppliers yourself may be the only remaining option. This way, you can ensure that any missed payments are in fact a result of your own negligence and you can handle it accordingly without the messy run-around of having to track down your general contractor again.
Source: FindLaw, "Understanding Mechanic's Liens"